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E*Trade's Business Is Clicking

S&P likes the online financial-services outfit's growth prospects and rates the shares strong buy, despite the competition

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By Matthew Albrecht

January 23, 2007 at 10:00 AM UTC

This article is for subscribers only.

We think that leading online financial-services company E*Trade Financial (ETFC: $24) will grow its earnings faster than its peers. The company has been aggressively diversifying its revenue stream through new business ventures and around the globe. As a part of this strategy, transaction-based revenues have played a shrinking part in its success over the past few years, which we believe gives the stock more downside protection than its peers.

Furthermore, we believe management's targets for 2007, including more than 30% growth in customer cash and deposits, 17% growth in average enterprise interest-bearing assets, and 20% earnings growth, are aggressive but achievable. E*Trade is committed to spending to support these targets, in our view, and its sound balance sheet and historically prudent financing decisions lead us to believe that it will meet its goals in 2007. The stock carries our highest investment recommendation of 5-STARS (strong buy).